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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1999
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______ to ______
LARK TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 73-1461841
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
9441 W. SAM HOUSTON PKWY. SOUTH, SUITE 103 (713) 779-3663
HOUSTON, TX 77099 (Issuer's telephone number)
(Address of principal executive offices)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Revenues for the fiscal year ending December 31, 1999 were $5,071,753.
The aggregate market value of the voting stock held by non-affiliates is
$5,574,388 based on a closing price of $2.00 on December 31, 1999.
APPLICABLE ONLY TO ISSUER INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of December 31, 1999, there were 3,324,046 shares of Common Stock, par value
$0.001 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format (Check one): Yes No [X]
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LARK TECHNOLOGIES, INC.
INDEX TO FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
Part I PAGE
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Item 1. Description of Business.......................................1
Item 2. Description of Property.......................................6
Item 3. Legal Proceedings.............................................6
Item 4. Submission of Matters to a Vote of Security Holders...........6
Part II
Item 5. Market for Common Equity and Related Stockholder Matters......6
Item 6. Management's Discussion and Analysis..........................7
Item 7. Financial Statements..........................................9
Balance Sheet..........................................11
Statements of Operations...............................12
Statements of Cash Flows...............................14
Notes to Financial Statements..........................16
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................27
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act..........27
Item 10. Executive Compensation.......................................30
Item 11. Security Ownership of Certain Beneficial Owners and
Management.................................................31
Item 12. Certain Relationships and Related Transactions...............33
Item 13. Exhibits and Reports on Form 8-K.............................34
Signatures...............................................................36
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
COMPANY HISTORY. Lark Sequencing Technologies, Inc. ("Sequencing") was
incorporated as a Delaware corporation in May 1990. Sequencing's corporate
predecessor was organized in 1989 for the purposes of (i) marketing standard
gene sequencing technologies used by scientists at Baylor College of Medicine in
Houston, Texas and (ii) marketing software developed at Baylor College of
Medicine used for sequencing.
In June of 1992, Sequencing acquired the assets of a Texas limited
partnership that was engaged in basic research into potential medical uses of
the bio-active proteins present in the venom of poisonous snakes. These assets
were placed by Sequencing in a wholly-owned subsidiary, Summa Biologica Inc., a
Texas corporation ("Summa"). The operations of Summa were not profitable and
were not deemed sufficiently promising to management of Sequencing to continue
expenditures in this respect. In December of 1993, Sequencing sold substantially
all the assets of Summa.
Lark Technologies, Inc. ("Lark" or the "Company") was incorporated under
the laws of the State of Delaware on November 16, 1994 for the purpose of
merging with Sequencing. Prior to the merger, Lark had no business operations or
significant capital and had no intention of engaging in any active business
until it merged with Sequencing. Prior to the merger, the sole shareholder of
Lark was SuperCorp Inc. ("SuperCorp"), an Oklahoma company. Upon approval of the
merger, SuperCorp spun off Lark by transferring its stock in Lark to its
shareholders.
The Company is a successor in interest to Sequencing through a merger
effected in September 1995. As a result of the merger, the shareholders of
Sequencing own 90% of the capital stock of Lark, and the shareholders of
SuperCorp own 10% of the capital stock of Lark.
BUSINESS OF LARK. Lark believes it is a leader in providing contract
molecular biology services to the pharmaceutical, biotechnology and agbio
industries. Lark's services are used worldwide by research organizations and
drug development institutions. Lark's contract research service portfolio
consists of over a hundred different molecular biology services in the areas of
Nucleic Acid Extraction Services, DNA Sequencing Services, Genetic Stability
Testing Services, Gene Expression and Detection Services, and Custom Molecular
Biology Services.
o NUCLEIC ACID EXTRACTION SERVICES. Lark either extracts and purifies the
nucleic acids from its clients' samples or receives them already prepared
by its clients. Lark uses a variety of extraction procedures to analyze
DNA and/or RNA from blood, tissue, and other body fluids as well as,
bacterial, plant and cell culture samples. The Company has established the
Good Laboratory Practices (GLPs) facilities and personnel training
necessary to extract nucleic acids from human and animal origins.
o DNA SEQUENCING SERVICES. Lark has assembled a breadth of DNA sequencing
services to meet a variety of end user applications. The Company has
extensive expertise in DNA sequencing and has incorporated multiple
sequencing technologies into its laboratory to accommodate both high
throughput and high complexity projects. Depending upon the nature of a
project Lark will develop an optimal sequencing strategy to generate
consistent, high quality sequence data for use in applications spanning
research to Food and Drug (FDA) submissions.
HIGH VOLUME SEQUENCING SERVICES. Lark's high volume sequencing
services involve sequencing thousands of selected clones from a
genomic or expressed sequence tag (EST) library utilizing high
throughput automated systems. The libraries are provided by the
customers and usually consist of clones from a specific genome of
interest.
LARGE SCALE GENOMIC SEQUENCING SERVICES. Lark constructs libraries
from a variety of genomic constructs and assembles them into full
length sequences. Lark applies a shotgun strategy to randomly
produce plasmid clones from cosmids, bacterial artificial
chromosomes (BACs) and
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phage artificial chromosomes (PACs) to sequence using automated
sequencing capabilities. The Company assembles these random
fragments into a consensus sequence and closes any missing sequence
applying gap sequencing strategies.
FAST TURNAROUND SEQUENCING SERVICES. Lark has a fast turnaround
sequencing team dedicated to providing high accuracy double or
single strand sequence information to clients on selected clones of
interest in a short timeframe. Clients use these services to obtain
complete sequence information on specific clones or regions of
interest and as a way to confirm initial sequence information.
Typically these services have a two to ten day turnaround time
depending upon the size of the clone to be sequenced.
o GENETIC STABILITY TESTING SERVICES. Lark assists clients in meeting the
regulatory guidelines established for development of certain
genetically-engineered biotechnology products. Lark analyzes and provides
a comprehensive report on the genetic integrity of cell banks used to
produce recombinant proteins, monoclonal antibodies, gene therapy, and
vaccine products.
FDA SEQUENCING. Lark's Food and Drug Administration (FDA) sequencing
service generates 100% accurate DNA sequence verification for a
sequence region of interest. Usually, Lark sequences the insert and
flanking regions of the sequence to be expressed to confirm no
modifications have occurred to the sequence during the cell banking
and production process.
COPY NUMBER. Lark uses various copy number analysis methods to
monitor the number of gene expression constructs contained in a cell
throughout the product production process.
INSERTION NUMBER. Lark uses molecular analysis techniques to
determine the insertion number of target sequences used to express
certain products in mammalian cell banks. The insertion number is
used to measure the stability of a eucaryotic cell bank.
RESTRICTION ENZYME ANALYSIS. Lark performs restriction enzyme
analysis on prokaryotic and eucaryotic cell banks to determine if
any unexpected genetic rearrangements have occurred in the
expression construct. The analysis supports confirmation of the
stability of a cell bank throughout the pre and post production
process.
PLASMID LOSS DETECTION. Lark has developed assays to detect the
percentage of cells in a cell bank which are missing product
producing plasmid systems. Increases in plasmid loss may be
indicative of instability and inefficiencies in the target cell
bank.
PHAGE DETECTION. Phage are bacterial viruses which can kill or alter
the bacterium's growth cycle or expression levels. Lark's phage
detection service is designed to detect contamination of a
prokaryotic cell bank by either lysogenic or lytic phage.
o GENE EXPRESSION AND DETECTION SERVICES. Lark offers several services to
assist its clients in ascertaining the biological role of a gene by
determining if, when and at what level a gene is being expressed in a
variety of samples of interest. These services are important in
identifying novel genes, confirming the validity of a gene as a drug
target, and monitoring a target gene through the product development
process. The Company believes these services are highly complementary to
genomic research.
DIFFERENTIAL DISPLAY ANALYSIS. Lark uses differential display
analysis methods to determine differences in gene expression between
control samples and one or more test samples. Lark's method utilizes
specific DNA amplification procedures to display variances in gene
expression patterns between control and test samples.
QUANTITATIVE POLYMERASE CHAIN REACTION (QPCR). Lark's QPCR service
is used for highly accurate gene sequence detection. This method
analyzes the distribution and expression of target DNA or RNA in a
high throughput format. The service has applications in
biotechnology
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product development including gene therapy distribution and
expression analysis, drug response studies, mutation detection, and
expression system development.
o CUSTOM MOLECULAR BIOLOGY SERVICES. Lark offers a variety of custom
services.
MANUAL SEQUENCING. Lark uses manual sequencing techniques for FDA
sequencing and complex sequencing projects. Lark utilizes manual
sequencing to support its automated DNA sequencing services when
accuracy and/or coverage has been guaranteed as part of a service.
Manual sequencing methods use radioisotopes and Lark maintains
licenses to use isotopes.
SUBCLONING. Subcloning is a procedure used to transfer a DNA region
of interest into a vector that is more suitable for procedures such
as DNA sequencing and gene expression. Lark provides a strategy and
services for subcloning a variety of different sequence fragments,
including PCR products, into standard vector systems.
LIBRARY SCREENING. Lark uses gene fragments to screen a customer's
library of clones and isolate the full length cDNA of interest. Lark
also provides services to search a library to find homologous genes
in related species or isolate the genomic equivalent of a cDNA.
POLYMERASE CHAIN REACTION (PCR). Lark uses PCR techniques to amplify
a specific sequence of interest to a customer from plasmid, viral,
or genomic DNA. Lark also has the expertise to provide reverse
transcriptase PCR for amplification of an RNA product.
DNA PREPARATION. Lark provides services to prepare plasmid DNA or
phage DNA on a large-scale basis for its customers.
Previously, Lark had also undertaken a senescence gene discovery program
for its own account. In 1995, the Company obtained exclusive rights to
senescence gene technology developed at Baylor College of Medicine ("Baylor"),
subject to third party royalty rights and development obligations. Senescence is
the final stage of cellular aging when a cell ceases to divide but remains
viable. The genes which control this process regulate cell immortality. The
major disease target for this gene technology is cancer. Animal studies have
demonstrated the ability of this technology to reduce tumor growth at
statistically significant levels. Lark is currently pursuing the licensing of
this technology through the activities of Sennes Drug Innovations.
BUSINESS STRATEGY. The Company plans to expand its leadership position as
a high quality molecular biology Contract Research Organization (CRO) on a
global basis by, 1) capitalizing on its current customer base and leveraging its
high level of repeat business, 2) growing its existing molecular biology service
business to support the high growth genomics industry, 3) establishing a broad
range of molecular biology services to meet expanding outsourcing needs of large
pharmaceutical clients, and 4) applying its molecular biology service expertise
to new and expanding market opportunities.
o CAPITALIZE ON THE CURRENT CUSTOMER BASE AND LEVERAGE REPEAT BUSINESS. The
Company has significant relationships with a number of leading
biotechnology companies and has served 18 of the 20 largest pharmaceutical
companies. The Company has also attained a high level of repeat business.
Lark believes it can further capitalize on its commercial relationships by
enhancing its direct sales force and applying an account focused approach
to its selling process.
o GROW EXISTING SERVICE BUSINESS TO SUPPORT HIGH GROWTH GENOMICS INDUSTRY.
The Company has established four product lines which support
genomics-based research and development efforts 1) Nucleic Acid Extraction
Services, 2) DNA Sequencing Services, 3) Gene Expression Services, and 4)
Gene Detection Services. Within each of these product lines are specific
services designed to meet specific project needs. Through the Company's
interactions with clients and awareness of the industry, Lark has
identified future services to add to these product lines in further
support of its client's genomics programs.
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o ESTABLISH BROAD RANGE OF MOLECULAR BIOLOGY SERVICES TO SUPPORT EXPANDING
OUTSOURCING NEED. A factor which influences Lark's new products program is
the requests made by Lark's clients for specific new services. Lark
believes the number of new services it will introduce will be
significantly impacted by the expanding outsourcing needs of its
client-base. By assemblying a portfolio of automated, molecular biology
services the Company believes it will be able to decrease its clients
product development timelines. Many of Lark's contractual arrangements are
customized proposals composed of a number of individual services
integrated into a production-oriented format. The Company plans to
continue to introduce high throughput approaches to accelerate its
client's abilities to efficiently analyze multiple samples.
o MOLECULAR BIOLOGY SERVICES FOR NEW AND EXPANDING MARKET OPPORTUNITIES. The
Company believes that molecular biology has applications extending beyond
the classical biopharmaceutical industry. Lark has identified the
agricultural biotechnology markets as a new and expanding opportunity for
its molecular biology services. Lark has developed a sales program to
penetrate the fast-growing agbio sector of the biotechnology industry and
has initiated several contracts for agbio customers.
MARKET OVERVIEW AND COMPETITION.
The Company was established to provide contract research services to
biotechnology researchers. With the advent of the Human Genome Project (an
initiative to map and sequence the human genome) and revolutionary advances in
the field of molecular biology, the Company has developed quality services to
capitalize upon these market opportunities. Today, the Company's services are
used worldwide by commercial, government and academic institutions. The Company
has earned a reputation as a leading provider of high quality DNA sequencing.
This reputation has allowed the Company to obtain key contracts with major
pharmaceutical and biotechnology companies throughout the world. The Company is
a fee for service contractor and typically takes no ownership position in the
intellectual property rights of the services it performs under contract.
Several factors influence the current competitive business conditions
faced by the Company. First, the total amount of DNA sequencing is increasing
due to the Human Genome Project and related genome sequencing initiatives, and
competitive pressures in the pharmaceutical industry. Major pharmaceutical
companies have made significant financial commitments to gene therapy
approaches. These approaches are maturing and may require demonstration of
genetic stability before or during clinical trials. For example, there are
currently over 60 biotech products in the marketplace and over 260 in clinical
trials, and 2,000 in preclinical development, all of which potentially require
FDA submission sequencing in support of a demonstration of genetic stability.
Additionally, companies in both the pharmaceutical and biotechnology
sectors are facing increasing competitive pressures to reduce fixed
expenditures. Pharmaceutical companies are increasingly outsourcing routine
procedures to maximize the innovative aspects of their internal efforts. The
biotechnology sector has accepted the virtual company model which supports
further outsourcing of routine development efforts.
The Company has many attributes which have enabled it to compete in this
complex environment. The Company is recognized as a quality leader among
contract molecular biology service providers and has operated under the
direction of industry professionals for more than six years. The Company's
technical team follows standard operating procedures which help to produce
consistent, high quality results. Because services are performed in compliance
with GLPs as specified by the FDA, Lark can undertake projects that support
applications to the FDA. Finally, the Company provides a breadth of molecular
biology services with flexible protocols to meet project specific objectives.
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The Company faces several types of competition. The first is individual
researchers capable of performing the work themselves rather than contracting it
out. A similar type of competition is that of the core lab, either in an
academic setting or within a large company, that can provide services at a much
reduced rate due to subsidies of its overhead expenses. These first types of
competition are difficult to overcome due to the perception of significantly
lower costs. There are several smaller companies which offer DNA sequencing
and/or related molecular biology services, that have not yet demonstrated the
longevity, breadth of services or marketing ability that the Company has.
Finally, there are several recent entrants in the genomics sequencing market.
These companies typically take an ownership position in the sequence information
they generate, whereas Lark takes no ownership position in any sequence data
generated for its clients.
The Company markets its services through advertisements in biological and
pharmaceutical journals, presentations to potential clients, attendance at trade
shows and scientific conferences, and client referrals. The Company's sales
staff in the United States and in its European branch office is compensated with
base salaries and commissions based on performance. The Company also has a
distributor covering the Benelux area in Europe.
RAW MATERIALS. The principal suppliers of raw materials for the Company's
services and R&D efforts are laboratory supply companies. The Company believes
that there are sufficient alternate suppliers available such that raw materials
will be available in sufficient quantities and at reasonable cost for the
foreseeable future.
CUSTOMERS. The Company provides services to researchers at a large number
of institutions.
PATENTS AND PROPRIETARY TECHNOLOGY. The Company actively seeks patent
protection in the U.S. and in significant foreign countries for inventions and
technologies for which it deems such protection commercially advisable. In
connection with its senescence gene discovery program, the Company currently has
licensed rights to one (1) issued U.S. patent and one (1) U.S. patent
application and shared ownership in another patent application. The Company
believes that this patent protection is important to its senescence technology,
but not essential to the overall success of the Company. The Company can make no
assurances that these applications will be approved, that similar patents have
not been or will not be issued, or that any patent issued to the Company will
not be circumvented or infringed. In connection with its senescence gene
discovery program, the Company is subject to certain performance and royalty
arrangements as described in Note 9 of the financial statements.
The Company relies on trade secrets and technical know-how in order to
maintain its competitive advantage and scientific expertise. It is the practice
of the Company to enter into confidentiality agreements with employees,
consultants, members of its scientific advisory board, and any third party to
whom it discloses confidential information. There can be no assurance that such
confidential information will not be disclosed or that similar trade secrets or
expertise will not be independently developed, or that access to such
information could not be gained inadvertently.
The Company is, by nature of its work, privy to certain confidential
information of its customers. In order to attract and maintain clients the
Company enters into confidentiality agreements with its customers as both
parties deem appropriate. There can be no assurance that such confidential
information will not be disclosed or that similar trade secrets or expertise
will not be independently developed, or that access to such information could
not be gained inadvertently.
GOVERNMENTAL APPROVAL. The Company is not dependent upon governmental
approval of its current services. However, many of its clients will submit
applications for new drugs or devices to the FDA. A significant portion of the
projects undertaken by the Company are in support of such applications and thus
are subject to compliance with standards established by the FDA and its foreign
counterparts. The Company employs personnel and utilizes procedures which it
deems necessary to comply with these regulatory standards. Although the Company
and its services are not themselves subject to FDA approval, the Company
complies with these regulatory standards in order to undertake this type of
project for its clients.
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By virtue of its work in support of its client's submissions to the FDA
and other regulatory bodies, the Company is subject to inspections by the FDA
and other federal, state and local agencies regarding specific FDA submission
projects it has worked on. Regulatory affairs audit teams from its
pharmaceutical and biotech clients frequently inspect the Company's facilities
and procedures to ascertain whether the Company is in sufficient compliance with
applicable regulations. The Company has not had a significant negative finding
as a result of such inspections. If significant violations were discovered
during a client or governmental inspection, the Company might be restricted from
undertaking additional submission projects until the violations were remedied.
GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL LAWS. The Company is subject to
regulations concerning laboratory and occupational safety practices, the use and
handling of hazardous chemicals and radioisotopes, and environmental protection.
The Company believes that it is in general compliance with such applicable
federal, state and local regulations and does not estimate the costs to comply
with these regulations will not be material.
EMPLOYEES. As of December 31, 1999, the Company had a total of 45 full
time employees of which 35 were based in the US and 10 were based in the UK. The
Company believes that its employee relations are good, but can make no
assurances that it will continue to be able to attract and retain qualified
employees. The Company also has engaged the services of consultants when
appropriate.
FORWARD-LOOKING INFORMATION. This Annual Report contains various
forward-looking statements and information that are based on management's belief
as well as assumptions made by and information currently available to
management. When used in this document, the works "anticipate," "estimate",
"project", "expect" and similar expressions are intended to identify
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that expectations will prove to have been correct. Such statements are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, estimated
projected or expected.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases 15,544 square feet of office and laboratory space for
its corporate headquarters in Houston, Texas pursuant to a lease which expires
December 31, 2009. The Company also leases office space for its European branch
office. The European branch office, originally located in Hove, England, was
moved to Saffron Walden, England in March, 1996 pursuant to a lease which
expires on May 31, 2000. Future amounts due under the terms of these leases are
detailed in Note 9 - "Commitments and Contingencies - Leases" of the financial
statements. The Company carries commercial insurance which it deems sufficient
to cover loss of lab equipment or occupancy privileges.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of the year ended December 31, 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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The Common Stock of the Company has been eligible to be quoted on the
Nasdaq Bulletin Board system under the symbol LDNA since the fourth quarter of
1995. As reported by America On Line, the high and low bids for each quarter of
1998 and 1999 are shown on the following table. These bids reflect the price
paid by the buyer, and do not include the commission withheld by the broker(s).
STOCK PRICES
1998 1999
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HIGH LOW HIGH LOW
Quarter Ending March 31, $1.03 $0.75 $1.03 $0.68
Quarter Ending June 30, $0.81 $0.50 $0.87 $0.50
Quarter Ending September 30, $1.03 $0.50 $1.03 $0.50
Quarter Ending December 31, $1.65 $0.68 $2.43 $0.62
As of December 31, 1999, there were approximately 2,026 holders of record
of the Common Stock.
The Company has never paid dividends on its Common Stock, and does not
anticipate paying any cash dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Statements and the accompanying Notes herein, and is qualified
entirely by the foregoing and by other more detailed financial information
appearing elsewhere.
OVERVIEW. The Company's revenues are derived through provision of DNA
sequencing and related molecular biology services to researchers in the
pharmaceutical, biotechnology, agritechnology and related industries. Quarterly
fluctuations in revenues arise primarily from variations in contract status with
customers. In addition, the majority of customer projects are individual orders
for specific projects ranging in value from $6,000 to $140,000. Engagement for
successive work is highly dependent upon the customer's satisfaction with the
services provided to date. The Company is unable to predict for more than a few
months in advance the number and size of future projects in any given period.
Thus, timing could have a significant impact on financial results in any given
period. The impact of the unpredictable project fluctuations from customers can
result in very large fluctuations in financial performance from quarter to
quarter.
The Company believes that its expansion efforts discussed in Part I will
compensate for some of these sales fluctuations. In addition, the Company has
initiated several steps to mitigate the effects of these fluctuations where
possible.
Since the middle of 1997, the Company has introduced three new service
lines. In late 1997 the Company introduced a new service, Quantitative PCR. Then
in the second quarter of 1998, the Company introduced its new Genetically
Modified Organizims service and, finally, at the very end of 1998, introduced
it's new Genotyping service.
In addition to the new services, the Company established a new lab
operation in its Saffron Walden, England facility. Although the Company has
maintained a sales office in the UK for many years, this is the first lab
facility the Company has established there. This facility employs ten full time
people and utilizes equipment which costs approximately $321,000.
RESULTS OF OPERATIONS
GROSS REVENUES. Gross revenues increased 24% from $4,089,050 to $5,071,753
for the years ended December 31, 1998 and 1999, respectively. The growth came
from increases in most product lines, with the fastest growth occurring in areas
relating to gnomic DNA sequencing, testing of industrially important cell lines
and in assays relating to pre-clinical and clinical testing of new
biopharmaceuticals.
COSTS OF SERVICES. Costs of services consist primarily of labor and
laboratory supplies. Costs of services increased 24% from $2,065,604 to
$2,557,793 for the years ended December 31, 1998 and 1999, respectively. The
increase in costs of services was required to produce the additional revenues in
1999 compared to 1998. Costs of
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services as a percentage of revenue were 51% and 50% for the years ended
December 31, 1998 and 1999, respectively.
SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and
administrative expenses consist primarily of salaries and related costs,
depreciation, amortization, legal and professional costs, rent, travel, and
advertising. Sales, general and administrative expenses decreased 5% from
$2,463,818 to $2,343,237 for the years ended December 31, 1998 and 1999,
respectively. Sales, general and administrative expenses as a percentage of
revenue were 60% and 46% for the years ended December 31, 1998 and 1999,
respectively. In previous years, the occupancy costs for the UK office were
included in this caption because they were primarily a sales and marketing
office. During 1998, six additional employees were hired to start the UK lab in
the space currently occupied by the UK office and provide sales support for it.
Since most of these lab costs occurred late in the year the amount of overhead
allocated to costs of services were relatively immaterial. As a larger portion
of the occupancy costs were related to the UK lab during 1999, the costs
allocated to sales general and administrative expenses decreased.
RESEARCH AND DEVELOPMENT. Research and development costs were $63,946 and
$0 for the years ended December 31, 1998 and 1999, respectively. Research and
development costs as a percentage of revenue were 2% and 0% for the years ended
December 31, 1998 and 1999, respectively. The expenses in 1998 were related to
the development of new services and the gene senescence project described in
Item 1 "Description of Business" above. In 1998, research and development
expenses decreased because the Company discontinued payments under the Sponsored
Research Agreement and related consulting agreement with the principal
researcher as described in note 9 to the financial statements.
VARIABILITY OF FUTURE OPERATING RESULTS. The growth in annual revenues was
largely attributable to the improved results of the 3rd and 4th quarters as
Lark's new business model began to perform as planned. Although the Company
expects higher and less variable revenue streams as a result of these changes,
the ultimate success of these changes can not be reasonably predicted.
LIQUIDITY AND CAPITAL RESOURCES. Operating cash flow was $246,970 and
$29,026 for the years ended December 31, 1998 and 1999, respectively. The
decrease in operating cash flow was due to the increase in accounts receivable
that resulted from higher levels of revenue and a reduction to accounts payable
made possible from the improved profitability.
During 1998, the Company invested $172,017 in laboratory equipment and an
additional $519,618 in lab equipment subject to capital leases mentioned in note
9 to the financial statements in order to support the current and expected
increase in revenues made possible by the addition of the new services and lab
in the UK.
The Company's bank debt totaled approximately $415,000 at December 31,
1999, and was made up of three components. The first component, totaling
approximately $15,000, is an equipment loan made to the company at the beginning
of 1999 and due in 2002. The second, totaling approximately $367,000, is the
Company's line of credit with its principal bank which matures December 31,
2000. The final component, totaling approximately $33,000 is the balance of a
term loan the Company borrowed in July 1999 and paid off during January 2000.
Other debt totaled approximately $34,000 at December 31, 1999.
Management anticipates that additional capital expenditures necessary to
support the Company's operating growth can be funded through a combination of
existing or proposed credit facilities and future operating results.
MATERIAL COMMITMENTS. The Company currently has no outstanding material
commitments.
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ITEM 7. FINANCIAL STATEMENTS
LARK TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
CONTENTS
PAGE
----
Report of Independent Auditors...............................................10
Financial Statements
Balance Sheet as of December 31, 1999..................................11
Statements of Operations for
Years Ended December 31, 1998 and 1999...............................12
Statements of Stockholders' Equity for
Years Ended December 31, 1998 and 1999...............................13
Statements of Cash Flows for
Years Ended December 31, 1998 and 1999...............................14
Notes to Financial Statements................................................16
9
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Lark Technologies, Inc.
Board of Directors and Stockholders
We have audited the accompanying balance sheet of Lark Technologies, Inc. (the
"Company") as of December 31, 1999, and the related statements of operations,
stockholders' equity, and cash flows for each of the two years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lark Technologies, Inc. at
December 31, 1999, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Houston, Texas
February 25, 2000
10
<PAGE>
LARK TECHNOLOGIES, INC.
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
Current assets:
Cash and cash equivalents ................................ $ 270,830
Accounts receivable ...................................... 925,109
Inventory ................................................ 229,728
Prepaid expenses ......................................... 60,308
-----------
Total current assets .......................................... 1,485,975
Property and equipment, net ................................... 914,186
Other assets, net ............................................. 30,750
-----------
Total assets .................................................. $ 2,430,911
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................... $ 583,838
Notes payable, current portion ........................... 441,709
Capital lease obligation, current portion ................ 143,155
Due to related parties ................................... 19,634
Accrued expenses ......................................... 162,747
Customer deposits ........................................ 134,702
Deposits from related parties ............................ 86,889
-----------
Total current liabilities ..................................... 1,572,674
Notes payable, less current portion ........................... 7,945
Capital lease obligation, less current portion ................ 9,410
-----------
Total liabilities ............................................. 1,590,029
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value:
Authorized shares - 2,000,000
None issued and outstanding
Common stock, $0.001 par value:
Authorized shares - 8,000,000
Outstanding shares - 3,324,046
Issued shares ....................................... 3,324
Additional paid-in capital ............................... 2,513,271
Treasury stock at cost ................................... (4,946)
Amounts due from stockholders ............................ (15,045)
Accumulated deficit ...................................... (1,655,722)
-----------
Total stockholders' equity .................................... 840,882
-----------
Total liabilities and stockholders' equity .................... $ 2,430,911
===========
SEE ACCOMPANYING NOTES.
11
<PAGE>
LARK TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
---------------------------
1998 1999
----------- -----------
Revenue:
Laboratory Services ....................... $ 4,089,050 $ 5,071,753
Costs and expenses:
Costs of services ......................... 2,065,604 2,557,793
Sales, general and administrative ......... 2,463,818 2,343,237
Research and development .................. 63,946 --
----------- -----------
Total costs and expenses ....................... 4,593,368 4,901,030
----------- -----------
Operating income (loss) ........................ (504,318) 170,723
Other income and (expense):
Interest expense .......................... (43,897) (130,025)
Interest income ........................... 22,637 6,890
----------- -----------
Total other income (expense) ................... (21,260) (123,135)
----------- -----------
Income (loss) before income taxes .............. (525,578) 47,588
Provision for income taxes ..................... -- 12,028
----------- -----------
Net income (loss) .............................. ($ 525,578) $ 35,560
=========== ===========
Basic and diluted earnings per common share .... ($ 0.16) $ 0.01
=========== ===========
SEE ACCOMPANYING NOTES.
12
<PAGE>
LARK TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, & 1999
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
---------------------------- ADDITIONAL -----------------------------
SHARES AT PAR PAID-IN
OUTSTANDING VALUE CAPITAL SHARES AT COST
------------- ------------ -------------- ----------- --------------
------------- ------------ -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 3,324,046 $3,324 $2,450,754 $0
============= ============ ============== =========== ==============
Common Stock repurchased 1,000 (1,192)
Common Stock repurchased 1,000 (1,098)
Common Stock repurchased 2,500 (2,656)
Net Loss
------------- ------------ -------------- ----------- --------------
BALANCE AT DECEMBER 31, 1998 3,324,046 $3,324 $2,450,754 4,500 ($4,946)
============= ============ ============== =========== ==============
Warrants issued for loan guarantees 62,517
Net Income
------------- ------------ -------------- ----------- --------------
BALANCE AT DECEMBER 31, 1999 3,324,046 $3,324 $2,513,271 4,500 ($4,946)
============= ============ ============== =========== ==============
<CAPTION>
AMOUNTS
DUE FROM ACCUMULATED
STOCKHOLDERS DEFICIT TOTAL
-------------- -------------- ----------------
-------------- -------------- ----------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 ($15,045) ($1,165,705) $1,273,328
============== ============== ================
Common Stock repurchased (1,192)
Common Stock repurchased (1,098)
Common Stock repurchased (2,656)
Net Loss (525,577) (525,577)
-------------- -------------- ----------------
BALANCE AT DECEMBER 31, 1998 ($15,045) ($1,691,282) $742,805
============== ============== ================
Warrants issued for loan guarantees 62,517
Net Income 35,560 35,560
-------------- -------------- ----------------
BALANCE AT DECEMBER 31, 1999 ($15,045) ($1,655,722) $840,882
============== ============== ================
</TABLE>
SEE ACCOMPANYING NOTES
13
<PAGE>
LARK TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-----------------------
1998 1999
--------- ---------
OPERATING ACTIVITIES
Net income (loss) .................................. ($525,577) $ 35,560
Adjustments to reconcile net income (loss)
to net cash provided by operating activities
Depreciation and amortization ................. 214,352 308,750
Non-cash loan costs from issuance of warrants . -- 62,517
Provision for losses on accounts receivables .. 150,000 --
Changes in operating assets and liabilities:
Accounts receivable ...................... 229,106 (326,113)
Inventory ................................ (115,771) (89,949)
Prepaid expenses ......................... 22,011 90,416
Other assets ............................. 2 (14,000)
Due from related parties ................. 42,714 33,126
Accounts payable ......................... 409,891 (45,948)
Accrued expenses ......................... (112,667) 31,954
Deposits ................................. (67,091) (57,287)
--------- ---------
Net cash provided by operating activities .......... 246,970 29,026
INVESTING ACTIVITIES
Purchases of property and equipment ................ (172,017) (126,408)
--------- ---------
Net cash used in investing activities .............. (172,017) (126,408)
FINANCING ACTIVITIES
Principal payments on notes payable ................ (236,231) (301,292)
Proceeds from notes payable ........................ 216,480 452,000
Repayment on capital lease obligations ............. (210,753) (248,002)
Repurchase common stock ............................ (4,946) --
--------- ---------
Net cash used in financing activities .............. (235,450) (97,294)
--------- ---------
Net decrease in cash and cash equivalents .......... (160,497) (194,676)
Cash and cash equivalents at beginning of year ..... 626,003 465,506
--------- ---------
Cash and cash equivalents at end of year ........... $ 465,506 $ 270,830
========= =========
SEE ACCOMPANYING NOTES
14
<PAGE>
LARK TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED
DECEMBER 31,
--------------------
1998 1999
-------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest .......................................... $ 43,897 $ 67,508
Income taxes ...................................... -- --
Noncash activities:
Capital lease to acquire property and equipment ... $519,618 $ 19,039
Note payable for prepaid insurance ................ $ 43,620 $ 70,805
SEE ACCOMPANYING NOTES
15
<PAGE>
LARK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Lark Technologies, Inc., a Delaware corporation (the "Company" or "Lark"),
was formed on November 16, 1994, as a wholly-owned subsidiary of SuperCorp Inc.
("SuperCorp"), for the purpose of merging with Lark Sequencing Technologies,
Inc., a Delaware corporation ("Sequencing"), as outlined in a merger agreement
("Merger Agreement") entered into by SuperCorp and Sequencing on October 28,
1994. The Merger Agreement was approved by SuperCorp on September 5, 1995, and
by the stockholders of Sequencing on September 12, 1995. As a consequence of the
merger, all of the shares of common and preferred stock of Sequencing were
exchanged for 1,800,000 shares of Common Stock of the Company with a par value
of $0.001 per share, and the 200,000 shares of Common Stock of the Company held
by SuperCorp were distributed to the shareholders of SuperCorp. The Company has
succeeded to all of the business previously undertaken by Sequencing. Lark
provides specialized laboratory services for DNA sequencing to biotechnology
researchers.
2. ACCOUNTING POLICIES
INVENTORY
Finished goods inventory consists of the direct and indirect costs to
produce quantitative polymerase chain reaction (QPCR) assays held for resale. At
December 31, 1999 finished goods inventory was $149,656.
Work in process inventory includes the direct and indirect costs
associated with projects that had been started but not yet completed at December
31, 1999. Direct costs include such items as the cost of labor, reagents and
supplies directly associated with each project. Indirect costs include such
items as general supplies, laboratory management, depreciation, and costs to
operate the lab. These costs are applied to each project on the basis of direct
labor hours incurred for the project up to the point of measurement such as the
end of an accounting period. At December 31, 1999, work in process inventory was
$80,072.
REVENUE RECOGNITION
The Company recognizes revenue and related profit upon the completion of
laboratory service projects. For laboratory service projects under government
indefinite delivery contracts, revenue and related profit is recognized as
projects are completed. Costs incurred on partially completed projects are
recorded as work-in-process.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
16
<PAGE>
LARK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
expense is recorded over the estimated useful lives of the assets on a
straight-line basis. The cost of repairs and maintenance is expensed as
incurred. The estimated useful lives of assets are as follows:
Laboratory equipment 5 years
Furniture and fixtures 5 years
Computer equipment 30 months to 5 years
Leasehold improvements 10 years
STOCK OPTIONS
The Company follows Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its employee stock options. The proforma disclosures required by
FASB Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which
established a fair value based method of accounting for stock-based compensation
are set forth in Note 9.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RESEARCH & DEVELOPMENT
Costs incurred in connection with research and development activities are
expensed as incurred. These consist of direct and indirect costs associated with
specific research and development projects.
ADVERTISING COSTS
The Company expenses all advertising costs as incurred. Total advertising
expense for 1998 and 1999 was $97,036 and $83,415, respectively.
INCOME TAX
The Company follows the liability method of accounting for income taxes.
Under this method, deferred income tax assets and liabilities are determined
based on differences between the financial statements and income tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE FINANCIAL
INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS No. 133"). SFAS No. 133 requires that
all derivatives be recognized as assets and liabilities and measured at fair
value. The accounting for changes in the fair value of a derivatives depends on
17
<PAGE>
LARK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the intended use of the derivative and the resulting designation. SFAS No. 133,
as amended, is effective for fiscal years beginning after June 15, 2000 and
early adoption is permitted. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of SFAS No. 133
will have a significant effect on net income or the financial position of the
Company.
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin 101, Revenue Recognition in Financial Statements ("SAB
101"), which the Company is required to adopt in the first quarter of 2000. In
March 2000, the SEC issued SAB 101A and temporarily delayed the adoption. SAB
101 clarifies how existing revenue recognition rules should be applied. The
Company is currently evaluating their revenue recognition policies and the
effect of adoption.
3. CONCENTRATION OF RISK
The Company provides laboratory services primarily to major researchers in
the United States and Europe. The Company generally requires a deposit of
approximately 50% of total anticipated billings prior to commencing work on
laboratory service projects. The Company performs ongoing credit evaluations of
its customers and generally does not require additional collateral on its
laboratory services.
The Company primarily invests its excess cash in deposits with local banks
and, at times, these deposits may exceed federally insured limits. The Company
selects depository institutions based upon management's review of the financial
stability of the institutions.
4. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1999 is presented net of an allowance
for doubtful accounts of approximately $24,000.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1999:
Laboratory equipment ....................................... $ 1,786,224
Furniture and fixtures ..................................... 93,205
Computer equipment ......................................... 375,861
Leasehold improvements ..................................... 70,342
-----------
2,325,632
Less accumulated depreciation and amortization ............. (1,411,446)
-----------
Property and equipment, net ................................ $ 914,186
===========
18
<PAGE>
<PAGE>
LARK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. ACCRUED EXPENSES
Accrued expenses consisted of the following at December 31, 1999:
Accrued payments under sponsored research agreement ............ $ 10,000
Accrued audit and tax preparation fees ......................... 36,750
Accrued salary costs, payroll taxes and insurance .............. 60,998
Accrued UK VAT tax payable ..................................... 29,555
Accrued legal and professional expenses ........................ 12,000
Accrued state income taxes ..................................... 12,028
Other .......................................................... 1,416
--------
$162,747
========
7. NOTES PAYABLE
At December 31, 1999, the Company had a revolving line of credit
with a bank. The terms of this revolving line of credit provided for maximum
borrowings of $450,000. Borrowings were to bear interest at the bank's prime
rate (8.5% at December 31, 1999) plus 2%. This line of credit expired December
31, 1999 and was renewed that same day. Under the terms of the new line of
credit, granted by the same bank, the terms and conditions are unchanged except
that the maximum borrowings were raised to $600,000 and the line currently
expires December 31, 2000. The line of credit is secured by qualified accounts
receivable of the Company. At December 31, 1999, the Company had $366,787
outstanding under this line of credit. The borrowing base for this line of
credit is equal to 80% of certain accounts receivable that are no more than 90
days old. On December 31, 1999, the company had an unused line of credit of
$233,213. Under the terms of the revolving line of credit agreement, the Company
is required to maintain certain financial ratios and a specific level of net
worth. The Company was in compliance with all required covenants at December 31,
1999.
On March 13, 1998, the company arranged an advised discretionary credit
line for the financing of equipment with the same bank used for the revolving
credit line. Under the terms of this discretionary credit, the Company was able
to borrow up to $600,000 secured by the equipment purchased with the proceeds of
the borrowings. This discretionary credit line provided for borrowings of up to
75% of the purchase price of equipment at the bank's prime plus 1.5%. This
credit line provided for repayment terms up to 36 months and matured on May 31,
1999. Although this credit facility was not renewed, the Company used a portion
of this line prior to its expiration to finance certain pieces of lab equipment
and, at December 31, 1999 the Company had $15,278 outstanding under this loan.
On July 13, 1999, the Company arrange a $200,000 term loan from the same
bank that extended the revolving credit facility. Under the terms of the loan,
the Company was to make substantially equal payments over a six-month period
ending with the last payment on January 15, 2000. At December 31, 1999, the
Company had $33,335 outstanding under this loan. Interest on this loan was at
the bank's prime rate (8.5% at December 31, 1999). As additional security for
this loan, certain stockholders of the Company agreed to provide guarantees that
totaled $250,000 in exchange for warrants to purchase the Company's common
stock. (See note 9.)
Other debt totaled $34,254 at December 31, 1999.
8. FEDERAL INCOME TAX
At December 31, 1999, the Company had net operating loss carryforwards of
$1,843,097 for income tax purposes that expire in 2005 through 2019. These net
operating loss carryforwards may be limited as a result of ownership changes
resulting from issuance of common stock.
19
<PAGE>
LARK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. A valuation allowance has
been recorded against the Company's net deferred tax assets because of the
Company's cumulative loss position.
Significant components of the Company's deferred tax liability and assets
are as follows at December 31, 1999:
Deferred tax liabilities:
Accumulated Depreciation .............................. $ (35,614)
---------
Total deferred tax liabilities ............................ (35,614)
Deferred tax assets:
Bad debt allowance .................................... 8,039
Net Operating loss carryforward ....................... 626,653
---------
Total deferred tax assets ................................. 634,692
Valuation allowance ....................................... (599,078)
---------
Net Deferred tax assets ................................... $ 0
=========
The reconciliation of income tax computed at the U.S. federal statutory
tax rates to income tax expense is:
1998 1999
--------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT
--------- --------- --------- ---------
Tax at U.S. statutory rates .. $(178,696) (34%) $ 16,180 34%
State income taxes ........... -- 0% 12,028 25%
Change in valuation
allowance .................. 154,876 29% (6,180) (13%)
Other ........................ 23,820 5% (10,000) (21%)
--------- --------- --------- ---------
$ -- -- $ 12,028 25%
========= ========= ========= =========
9. COMMITMENTS AND CONTINGENCIES
STOCK OPTION AND WARRANTS
The Company has an incentive stock option plan (the "Plan") for directors,
certain key employees, and others as determined by the directors. The Company
has reserved 520,968 shares of common stock for issuance under the stock option
plan. The price at which shares may be purchased under the option plan shall not
be less than the greater of (a) 100% of the fair market value of the shares on
the date the option is granted or (b) the aggregate par value of such shares on
the date the option is granted. Common stock options granted are generally
exercisable after 6 months.
The Company applies APB 25 in accounting for the Plan. Because the
exercise price of the options was equal to the market value of the stock at the
20
<PAGE>
LARK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
date of grant, no compensation cost has been recognized for its fixed stock
option plan. Pro forma information regarding net income and net income per
common share is required by FASB Statement No. 123 as if the Company had
accounted for its incentive stock options under the fair value method of that
statement. The fair value of these options was estimated at the date of grant
using the Black-Scholes option pricing ("Black-Scholes") model for the 1999 and
1998 options granted with the following weighted average assumptions: (I)
risk-free interest rates ranging from 5.00% to 6.50% (ii) a dividend yield of 0%
for both years, (iii) volatility factors of the expected market price of the
company's common stock of .71% and 1.07%, respectively, and (iv) a weighted
average expected life of two years and five years respectively.
The Black-Scholes model was developed for use in estimating the fair value
of traded options that have no vesting restrictions and are fully transferable.
In addition, option valuation models require the input of highly subjective
assumptions, including the expected volatility. Because the Company's employee
stock options have characteristics significantly different from those of traded
options and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employees stock options.
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period. Had
compensation for the Company's stock-based compensation plan been determined
based on the fair value at the grant dates for awards under the Plan consistent
with the method of FASB Statement No. 123, the Company's net income and net
income per common share would have been adjusted to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1998 1999
--------------------------- --------------------------
As As
REPORTED PRO FORMA REPORTED PRO FORMA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) .................. $ (525,577) $ (612,971) $ 35,560 $ (92,321)
Basic and diluted net income (loss)
per common share ................. $ (0.16) $ (0.18) $ 0.01 $ (0.03)
</TABLE>
During 1998 and 1999, the Company issued incentive stock options under the
Plan, which had exercise prices equal to the fair market value of the common
stock at the date of grant. A summary of the Company's stock options activity
and related information follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1999
WEIGHTED WEIGHTED
AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Outstanding-
Beginning of year ..... 264,963 $ 1.8198 260,706 $ 1.80
Granted ............... 65,250 $ 1.60 216,606 $ 0.73
Exercised ............. -- -- -- --
Forfeited ............. 69,507 $ 1.70 168,205 $ 1.73
------------- ------------- ------------- -------------
Outstanding - end of year. 260,706 $ 1.80 309,107 $ 1.38
Options exercisable at
year-end .............. 132,206 154,827
Weighted average fair
value of options
granted during the
year ................. $ 0.48 $ 0.64
</TABLE>
21
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LARK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following summarizes information related to stock options outstanding
at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- ----------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
RANGE OF AVERAGE REMAINING AVERAGE
EXERCISE EXERCISE CONTRACTUAL EXERCISE
PRICES OPTIONS PRICE LIFE OPTIONS PRICE
- ---------------- -------- --------- ----------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
$0.47 - $0.98 208,857 $0.73 9.9 yrs. 114,581 $0.72
$1.42 - $2.45 100,250 $1.84 7.9 yrs 40,250 $1.79
-------- ---------
309,107 $1.09 9.3 yrs. 154,831 $1.00
======== =========
At December 31, 1999, there are 203,678 options available for future grants
under the Plan.
During May through September of 1999 inclusive, the Company issued options
to certain employees in conjunction with a salary reduction plan instituted May
1, 1999, with an exercise price of $0.75 per share.
During July of 1999, the Company issued warrants to certain stockholders
who provided $250,000 in personal guarantees as collateral for a $200,000 term
loan. These warrants provided the holders with the options to purchase a total
of 250,000 shares of the Company's common stock at $.25 per share. Under the
terms of the warrants, 125,000 warrant shares may be redeemed by the Company if
the guaranteed loan is repaid within the terms of the loan at a redemption price
of $0.25 per share. If not redeemed, the exercise period of these warrants is
from January 15, 2000 until June 30, 2002. The balance of the warrants are not
redeemable by the Company and are exercisable from June 30, 1999 until June 30,
2002.
LEASES
The Company leases certain real estate for its corporate office and branch
office in the United Kingdom, as well as certain equipment under noncancelable
lease agreements which expire at various dates. Total rent expense for all
operating leases for 1998 and 1999 was $287,794 and $365,546 respectively.
22
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LARK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Future minimum payments under these operating leases are as follows:
FOR THE YEAR ENDING DECEMBER 31,
--------------------------------
2000 $131,594
2001 145,468
2002 145,468
2003 154,756
2004 154,756
--------
732,042
========
The gross amount of assets recorded under capital leases at December 31,
1999 was $584,995. The related acumulated amortization was $163,406 at December
31, 1999. Under the terms of the capital leases, the Company is obligated to
make payments as set forth in the table below and, subject to certain
conditions, may purchase the equipment at the end of the lease for a nominal
amount.
Future minimum payments under these capital leases are as follows:
2000 $149,430
2001 6,218
2002 6,218
--------
161,866
Less interest portion of payments 9,301
--------
Net present value of lease payments 152,565
Less current portion 143,155
--------
Capital lease obligation less current portion $ 9,410
========
Amortization of capital lease asset is included in depreciation expense.
PATENT LICENSE AGREEMENT
Effective June 15, 1995, the Company entered into an exclusive patent
sub-license agreement with another biotech company. The agreement grants to the
Company an exclusive license to certain "Licensed Patent Rights" of this third
party and requires the Company to perform research and development efforts as
defined in the agreement. The Company is required to pay the third party a
royalty of 25% to 50% of all consideration the Company receives as a result of
sales of licensed products and licensed processes or a sub-license or assignment
of the Company's rights under the agreement. If the Company does not meet the
research and development milestones as defined in the agreement, or is unable to
successfully commercialize the results of the research and development efforts,
the agreement will terminate. Otherwise, the agreement will terminate upon the
dissolution of the Company or the expiration of the "Licensed Patent Rights".
The agreement may also be terminated by the Company with 60 days written notice
to the third party.
SPONSORED RESEARCH CONTRACT AND CONSULTING AGREEMENT
The Company entered into a sponsored research contract on August 1, 1995,
whereby the Company is required to fund certain research and development efforts
being performed by Baylor College of Medicine ("Baylor"). The research and
development is being performed pursuant to the Patent License
23
<PAGE>
LARK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Agreement described in this Note. The agreement expired on July 31, 1997 and
required the Company to pay Baylor a total of $53,739 annually in monthly
installments over the term of the contract. At December 31, 1999, the Company
owed $10,000 to Baylor under this agreement and did not renew the agreement.
The Company entered into a related consulting agreement with the Principal
Investigator at Baylor. This agreement expired on August 1, 1997 and required
the Company to pay the researcher a total of $24,000 annually in monthly
installments over the term of the contract. The Company has not renewed the
agreement.
OTHER COMMITMENTS
In September 1995, the Company entered into a two-year employment
agreement with the new President and CEO of the Company providing for a base
salary and bonus arrangement. The President and CEO entered into a Restricted
Stock Purchase Agreement whereby the President and CEO purchased 101,452 shares
of restricted Common Stock at $.1479 per share, subject to the right of the
Company to repurchase a declining portion of such shares should the President
and CEO terminate his employment with the Company prior to the expiration of 48
months. In connection with the purchase of the restricted Common stock, the
Company received a note from the President and CEO in the amount of $15,000. The
note is secured by the restricted stock, is due October 24, 1999, bears simple
interest at a variable rate equal to the minimum variable rate permissible to
avoid imputed interest and is reflected as a reduction of stockholders' equity
until paid. In November 1999, the subject CEO left the Company for another
position. As a part of the separation agreement, the board agreed to extend the
note to become due in November, 2000.
10. 401(K) PLAN
Effective January 1992, the Company adopted an employee 401(k)
retirement plan. Qualified employees may contribute up to 15% of their gross pay
to the plan. Employee contributions are limited to amounts established by law.
The Company may make matching contributions to the plan as determined by the
Board of Directors subject to the limitations under the Internal Revenue Code.
The Company made no contributions to the plan in either 1998 or 1999.
11. RELATED PARTY TRANSACTIONS
The Company has appointed TaKaRa Shuzo Co. Ltd. (TaKaRa), a major
stockholder of the Company, as the Company's exclusive representative in Japan,
South Korea, Taiwan, Oceania and Singapore for a ten-year period commencing June
25, 1990. The Company has the right to terminate TaKaRa's exclusivity. The
Company has also agreed to use its best efforts to purchase reagents and
biologics it uses in the performance of services from TaKaRa or PanVera
Corporation, TaKaRa's distributor.
TaKaRa has not purchased laboratory services from the Company in 1998 or
1999. The Company has also provided laboratory services, at rates normally
charged to third-parties, to affiliates of stockholders of the Company totaling
approximately $86,491 and $12,976 in 1998 and 1999, respectively.
The Company purchased approximately $22,969 and $39,698 of laboratory
supplies and other services from affiliates of stockholders of the Company in
1998 and 1999, respectively.
TaKaRa periodically advances the Company funds to be applied against
future laboratory services purchased by TaKaRa. At December 31, 1999, the
unearned balance of TaKaRa deposits was $86,889.
24
<PAGE>
LARK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The due to related parties at December 31, 1999 is comprised primarily of
amounts due to affiliates of stockholders of the Company for laboratory supplies
purchased by the Company.
12. MAJOR CUSTOMERS
During 1998, approximately 27% of the Company's revenue was with a single
customer located in the United States. During 1999, no single customer provided
greater than 10% of the Company's revenue.
13. SEGMENT INFORMATION
The proportion of the Company's sales to customers in foreign countries is
as follows:
1998 1999
---------- ----------
Sales - European Community ..................... 5% 19%
Identifiable assets (primarily property and
equipment)
US ........................................ $ 791,939 $ 638,164
UK ........................................ 310,756 276,022
---------- ----------
Total .............................. $1,102,695 $ 914,186
========== ==========
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has determined, based on available market information and
appropriate valuation methodologies, that the value of its financial instruments
approximates carrying value. The carrying amounts of cash and cash equivalents,
accounts receivable and accounts payable approximate fair value due to the
short-term maturity of the instruments. The carrying amounts of debt
approximates fair value because the interest rates under the credit agreement
are variable, based on current market. The carrying amount of the capital lease
obligation approximates fair value based on rates currently available to the
Company.
15. EARNINGS PER SHARE
The following table sets forth the weighted average shares outstanding for
the computation of basic and diluted earnings per share:
25
<PAGE>
LARK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDING
DECEMBER 31,
------------------------
1998 1999
--------- ---------
<S> <C> <C>
Weighted average common shares outstanding ....... 3,322,694 3,319,546
Dilutive securities - employee stock options ..... -- 94,933
--------- ---------
Weighted average common shares outstanding
assuming full dilution ........................ 3,322,694 3,414,479
========= =========
</TABLE>
All options to purchase common stock outstanding during 1998 were not
included in the computation of diluted earnings per share because the effect
would be antidilutive. In 1999, options representing 100,250 shares were
excluded from the determinatin of diluted earnings per share because their
effect were not dilutive.
16. SUBSEQUENT EVENTS
At the end of January 2000, the company moved into a new leased facility
in Houston. This new facility has 15,554 square feet of office and laboratory
space in a single story building.
26
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names, ages, and terms of office of each of the
directors and executive officers of the Company and a description of the
business experience of each.
OFFICE HELD
PERSON OFFICE SINCE
- ------ ------ -----------
Stephen J. Banks, 59 Director, 1989(1)
Chairman of the Board 1989(2)
George M. Britton, 51 Director 1989(1)
David A. Lawson, 52 Director 1989(1)
Douglas B. Wheeler, 54 Director
Vice President, Finance
Secretary and Treasurer 1996(2)
Raymond A. Vonder Haar, Ph.D., 53 Scientific Director 1993(1)
(1) The directors shall be elected at the annual meeting of stockholders, and
each director elected shall hold office until his successor shall be
elected and shall qualify.
(2) The officers shall be elected annually by the Board of Directors at its
first regular meeting held after the annual meeting of stockholders or as
soon thereafter as conveniently possible. Each officer shall hold office
until his successor shall have been chosen and shall have qualified.
STEPHEN J. BANKS is the president of BCM Technologies, Inc., the
technology transfer subsidiary of Baylor College of Medicine. Mr. Banks has
been with BCM Technologies, Inc., since 1988. Prior to 1988 he was a vice
president of The Hillman Company, an investment holding company located in
Pennsylvania. Mr. Banks holds an MBA from Harvard University and a BS degree
from the Massachusetts Institute of Technology.
GEORGE M. BRITTON is a director of Britton Capital Services, a
closely-held investment and financial consulting firm. Since 1989 approximately
80 percent of his activities have been related to real estate acquisitions,
syndications, development, leasing and management, primarily in commercial
properties in the Houston, Texas area, and approximately 20 percent of his
activities have been related to assisting start up and early-stage companies in
their business plans and in contacting venture capitalists. Mr. Britton holds an
MBA degree from the University of Texas and a BA degree from Vanderbilt
University.
27
<PAGE>
DAVID A. LAWSON is an independent real estate investor and consultant in
Houston, Texas. In this capacity, Mr. Lawson has been actively involved in the
acquisition, syndication and ownership and management of income-producing real
estate in Houston and elsewhere. He is president of three Texas corporations,
Diva Corporation, Twelve Oaks Tower I, Inc., and OFD Redevelopment, Inc., each
of which is the general partner and manager of a limited partnership that owns a
redevelopment real estate project in Houston, Texas. He has been active in this
respect since 1983 with respect to Diva Corporation, since 1991 with respect to
OFD Redevelopment, Inc., and since 1992 with respect to Twelve Oaks Tower I,
Inc. Diva and Twelve Oaks manage medical office buildings in the Texas Medical
Center, and OFD manages a shopping center. Mr. Lawson holds a BS degree from
Trinity University.
DOUGLAS B. WHEELER joined Lark in November, 1996 as Vice President,
Finance. Prior to joining Lark, Mr. Wheeler served as Chief Financial Officer
and Director for Minga Oilfield Group NV from 1983 until 1995. From 1980 until
joining Minga, Mr. Wheeler held financial management positions in Baker
International and Enserch Corporation where he assisted in several startup
operations and assisted in numerous acquisitions. He received a BBA degree in
Accounting from Texas Tech University in 1969 and is a CPA.
RAYMOND A. VONDER HAAR, PH.D., has served as Scientific Director since
1993. Previously, Dr. Vonder Haar was a research scientist at Transgene, S.A.,
in Strasbourg, France. From 1990 to 1992 he was Director of Molecular Biology
Services at Ambion, Inc., in Austin, Texas. From 1979 to 1990 Dr. Vonder Haar
held a faculty position at Texas A&M University in the department of Medical
Biochemistry where he worked on genetic and metabolic control mechanisms in
mammalian systems. For two years he was Director of the DNA Sequencing Synthesis
Core Laboratory at Texas A&M. Dr. Vonder Haar received his A.B. in Zoology from
the University of Missouri and his Ph.D. in Molecular Biology from Purdue
University.
SIGNIFICANT EMPLOYEES
Set forth below are the names, ages, and dates of service of each of the
significant employees of the Company and a description of the business
experience of each.
EMPLOYEE
PERSON OFFICE SINCE
- ------ ------ --------
David Alan Wall, Ph.D., 37 Director, Quality Control
and Compliance(1) 1994
J. D. Kittle, Jr., Ph.D., 41 Senior Director
Scientific Project Development(1) 1996
Heidi B. Nelson, Ph.D., 36 Manager,
Gene Quantitation(1) 1997
George (Guo-Wei) Xu, Ph.D., 49 Director, Advanced Molecular
Biology Services (AMBS) 1998
Li Li, Ph.D., 40 Senior Scientist, Manager of
Genotyping Service 1998
David Buck Ph.D., 39 Managing Director. UK(1) 1998
(1) This person is not a corporate officer or a corporate director of Lark but,
rather is a significant employee whose position carries a title.
28
<PAGE>
DAVID A. WALL, PH.D., has served as Director, Quality Control and
Compliance since January 2000. Previously, Dr. Wall was Associate Director of
GenTest Laboratories in New Orleans, Louisiana, in charge of the Paternity
Testing Laboratories. He was also Director of Research and Genetic Testing at
ImmGen, Inc., College Station, Texas. Dr. Wall received his B.S. in animal
science and his Ph.D. in genetics from Texas A&M University in College Station,
Texas.
JOSEPH D. KITTLE, JR., PH.D., has served as Senior Director, Scientific
Project Development since January 1999. Prior to joining Lark, Dr. Kittle served
GeneMedicine, Inc., The Woodlands, Texas, as Senior Scientist, Expression
Systems. Prior to GeneMedicine, Inc., he was a research scientist at Battelle
Memorial Institute. Dr. Kittle holds a Ph.D. in Chemistry from Harvard
University and a B.S. in Chemistry from Ohio University.
HEIDI NELSON, PH.D., has served as Manager of Gene Quantitation since
November 1998. Prior to joining Lark she worked as a Scientist at Zonagen
Pharmaceuticals, Inc. in the Molecular Biology Division. Between 1985 and 1986
Dr. Nelson worked as a technician in an immunology lab at Tufts University. Dr.
Nelson graduated with a B.S. in Biology and Russian from Duke University in May
of 1985 and obtained her Ph.D. in Cellular and Molecular Biology from the
University of Wisconsin-Madison in 1993.
GEORGE XU, PH.D., has served as Director of Advanced Molecular Biology
Services since June 1998. Prior to joing Lark he worked as Research Scientist at
Energy Biosystems in The Woodlands, Texas. Between 1988 to 1993, Dr. Xu worked
as a Postdoctoral Research Associate in the Microbiology lab and the Plant
Genetics lab at Texas A&M University. Dr. Xu arrived in the United States in
1981 and is a graduate from Washington State University with a M.S. and a Ph.D.
in Microbiology.
LI LI, PH.D., has recently joined Lark as the Senior Scientist and Manager
of Genoytping Service. Prior to joining Lark, Dr. Li worked as a Post-Doctor
fellow and senior research associate in the Human Genetics Center, University of
Texas, in charge of various throughput genotyping, sequencing, SNP discovery and
large scale DNA extraction between 1992-1998. Previously, she also worked as a
research scientist with the USDA for three years. Dr. Li received her B.S. in
plant biology from South China University of Tropcalcrops and her Ph.D. in
Zoology from Reading University, England.
DAVID BUCK, PH.D., joined Lark in 1998 to head up the new lab in the UK
and, in 1999, was promoted to Managing Director of the whole UK operation. Prior
to joining Lark, Dr. Buck was Group Leader at the world renowned Sanger Centre
where he was responsible for establishing the institution's first human genome
sequencing team. Dr. Buck coordinated the Chromosome 22 and 20 sequencing
projects and completed over 11 megabases of finished human sequencing during his
tenure at the Sanger Centre.
29
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------------------------- -------------------------------------
AWARDS PAYOUTS
---------------------------- --------
RESTRICTED SECURITIES
NAME AND OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- ----------------------- ---- ---------------- ------------- ------------ ----------- --------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vincent P. Kazmer(1) 1999 125,581
President & CEO 1998 143,000 2,767 -
1997 132,000 4,090 95,000
Douglas B. Wheeler 1999 109,336 30,000
Vice President Finance 1998 101,042 1,740 -
1997 75,000 7,415 21,500
Bethany J. Pimentel 1999 -
Vice President 1998 52,564 19,264 -
1997 84,182 34,749 47,500
Raymond Vonder Haar 1999 90,916 20,000
Vice President, Science 1998 85,938 1,679 -
1997 75,729 2,255 45,000
Alan B. Carter(2) 1999 105,985
VP, Sales & Marketing 1998 75,729 2,255 -
</TABLE>
(1) Mr. Kazmer resigned as President, CEO and a director in November, 1999.
(2) Mr. Carter resigned as VP, Sales and Marketing in September, 1999
OPTION/SAR GRANTS IN LAST FISCAL YEAR
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED FISCAL YEAR ($/SHARE) DATE
- --------------- ------------ ---------------- ----------- ----------
Douglas Wheeler 30,000 18.00% $0.72 10/22/2009
Ray Vonder Haar 20,000 12.00% $0.72 10/22/2009
30
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
None
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR: None
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table describes Security Ownership of Beneficial Owners of more
than 5% of the Common Stock of the Company:
NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF
TITLE OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNER CLASS
- -------------- --------------------------- ----------------- -----------
Common Carter Interests, Ltd. 207,569 6.2
5757 Memorial Drive
Houston, Texas 77007
Common TaKaRa Shuzo Co., Ltd. 222,902 6.7
Biotechnology Research
Laboratories
SETA 3-4-1 Otsu
Shiga, 520-21, Japan
Common Baylor College of Medicine 257,540(1) 7.7
One Baylor Plaza
Houston, Texas 77030
(1) Mr. Banks is deemed to be the beneficial owner of 50,726 shares of the
Company's Common Stock. Mr. Banks is the President of BCM Technologies, Inc.
which is a subsidiary of Baylor College of Medicine.
31
<PAGE>
The following table describes the Security Ownership of Directors, CEO, and
Directors and Executive Officers as a Group:
NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF
TITLE OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNER CLASS
- -------------- -------------------------- ------------------- ----------
Common Baylor College of Medicine 257,540(1) 7.7
One Baylor Plaza
Houston, Texas 77030
Common Stephen J. Banks 50,726(1) 1.5
BCM Technologies, Inc.
1709 Dryden, Suite 901
Houston, Texas 77030
Common George Britton 151,596 4.6
3272 Westheimer, Suite 3
Houston, Texas 77098
Common Vincent P. Kazmer 141,452 4.3
2161 Benjamin Circle
Hudson, Ohio 44236
Common David Lawson 241,078(3) 7.25
2039 Dryden
Houston, Texas 77030
Common Douglas B. Wheeler 18,000 *
514 Enchanted River Dr.
Spring, Texas 77388
Common Directors and Executive 602,852(2) 18.1
Officers as a Group
9441 W. Sam Houston Pkwy.
South, Suite 103
Houston, Texas 77099
(1) Mr. Banks is deemed to be the beneficial owner of 50,726 shares of the
Company's Common Stock. Mr. Banks is the President of BCM Technologies, Inc.
which is a subsidiary of Baylor College of Medicine.
(2) The Directors and Executive Officers as a group total 7 persons.
(3) This includes 95,517 shares held by D. C. Lawson trust and 95,517 held by S.
R. Lawson trust.
* Indicates less that 1% ownership.
32
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As described in Note 11 to the Financial Statements, the Company purchases
laboratory reagents from an affiliate at rates normally charged to a third
party.
33
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ending December 31, 1998.
INDEX OF EXHIBITS
* 2.1 The Agreement of Merger of November 18, 1994, between Lark
Technologies, Inc. and Lark Sequencing Technologies, Inc.
providing for the merger of Lark Sequencing Technologies, Inc.
into the Company.
*3.1 Bylaws of Lark Technologies, Inc., as amended.
*3.2 The Certificate of Incorporation of Lark Technologies, Inc., as
amended.
*10.1 1990 Stock Option Plan adopted by the Company.
*10.2 Agreement between Lark Sequencing Technologies, Inc. and MedProbe,
A.S.
*10.3 Agreement of 12-28-94 between Lark Sequencing Technologies, Inc.
and SmithKline Beecham PLC.
*10.4 Patent License Agreement between Sennes Drug Innovations, Inc. and
Lark Sequencing Technologies, Inc.
**10.5 Form of Warrant Agreement entered into by and between the Company
and each of George Britton, David Lawson, Peter Boatright, Homer
Peterson, and Larry Peterson.
**10.6 Lease Agreement and Extensions and Modification of Lease Agreement
by and between Lark Sequencing Technologies, Inc. and Lacy
Petroleum, Inc.
***10.7 Employment Agreement entered into by and between the Company and
Vincent Kazmer.
***10.8 Restricted Stock Purchase Agreement entered into by and between
the Company and Vincent Kazmer.
***10.9 Promissory Note entered into by and between the Company and
Vincent Kazmer.
***10.10 Lease Agreement between Lark Technologies, Inc. and Oakley
Commercial (UK).
***10.11 Sponsored Research Contract entered by and between the Company and
Baylor College of Medicine.
***10.12 Consulting Agreement entered into by and between the Company and
Olivia Pereira-Smith.
****23.1 Consent of independent auditors.
* Incorporated by reference from the Company's Registration Statement on Form
S-4 dated August 14, 1995, Commission File No. 33-90424. The exhibit numbering
system used in Form S-4 differed from that used in this Form 10-QSB (8a, 2d, 2c,
6b, 6c, 6d-1, and 6f, respectively).
** Incorporated by reference from the Company's Form 10-QSB for the quarterly
period ended June 30, 1995.
*** Incorporated by reference from the Company's Form 10-QSB for the quarterly
period ended September 30, 1995.
**** Filed herewith.
34
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Lark Technologies, Inc.
(Registrant)
Date MARCH 30, 2000 /s/ STEPHEN J. BANKS
Stephen J. Banks, Director
Chairman of the Board
Date MARCH 30, 2000 /S/ GEORGE M. BRITTON
George M. Britton, Director
Date MARCH 30, 2000 /S/ DAVID LAWSON
David Lawson, Director
Date MARCH 30, 2000 /S/ DOUGLAS B. WHEELER
Douglas B. Wheeler
Vice President, Finance
35
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements Form S-8 (No. 333-08847) pertaining to the Lark Sequencing
Technologies, Inc. 1990 Stock Option Plan and Form S-8 (No. 333-35675)
pertaining to the Lark Technologies, Inc. 1997 Nonqualified Stock Option Plan
for Non-Employee Directors of our report dated February 25, 2000 with respect
to the financial statements of Lark Technologies, Inc. included in the Annual
Report (Form 10-KSB) for the year ended December 31, 1999.
ERNST & YOUNG LLP
Houston, Texas
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 270,830
<SECURITIES> 0
<RECEIVABLES> 948,752
<ALLOWANCES> 23,643
<INVENTORY> 229,728
<CURRENT-ASSETS> 1,485,975
<PP&E> 2,325,632
<DEPRECIATION> 1,411,446
<TOTAL-ASSETS> 2,430,911
<CURRENT-LIABILITIES> 1,572,674
<BONDS> 0
0
0
<COMMON> 3,324
<OTHER-SE> 837,558
<TOTAL-LIABILITY-AND-EQUITY> 2,430,911
<SALES> 5,071,753
<TOTAL-REVENUES> 5,071,753
<CGS> 2,557,793
<TOTAL-COSTS> 4,901,030
<OTHER-EXPENSES> (6,890)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 130,025
<INCOME-PRETAX> 47,588
<INCOME-TAX> 12,028
<INCOME-CONTINUING> 35,560
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,560
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
